New legislation impacting the defence industry in Poland

18 August 2015

Małgorzata Darowska

The new law on Control of Investments in Strategic Industry Sectors enters into force.

The new law gives the government a tool to control the shareholding structure changes in businesses strategic for Poland's security, and will apply to companies from the energy, military, oil, telecom and chemical sectors. Any transactions resulting in change of control in entities subject to these regulations, will require prior notification to the Ministry of Treasury (MoT). Indirect change of control will be monitored afterwards. Irrespective whether the control is to be direct or indirect, and MoT approval decision will be required and such a decision will be issued within three months of the MoT being notified. Failure to meet these obligations will result in transactions being invalidated and further sanctions, including possibly penal liability for those involved.

A detailed list of companies subject to such strict control will be included in further regulations issued once the law enters into force, which is likely to be in late September and until such a list is decided the law will be unenforceable. It is important to note that the law does not exclude private businesses from being placed on this list. It may be expected that at least several key businesses will be listed.

The law is aimed at monitoring foreign investments from countries identified as posing possible threats to Europe's stability. It is also focused on securing the patent, know-how and industrial base of the Polish defence industry, which has been exposed to takeover attempts for some time now. This is the first such law adopted in Poland, and is expected to stimulate discussions on national security issues in business versus the EU rule of free movement of capital.

In this context a new development concerning the defence industry is worth mentioning: the Parliament was recently presented with a draft bill on strengthening the Polish defence industry, setting out a precise framework for deciding on the level of Polish industry participation in procurement projects.

The key areas to guarantee a share to the Polish defence industry in MoD procurement projects would be production and servicing. Hopefully this will also kick start a discussion on the legal definition of "polonisation", a term adopted by the MoD some years ago and never clearly explained.

Both the law and the bill appear to run contrary to the main aims of the EU's Military Procurement Directive and Commission policy. Given the euro-scepticism of, and implied support for the draft, by the main opposition party Law and Justice (PiS), which has a good chance of winning this Autumn's elections, military procurement could be an early bone of contention between Warsaw and Brussels.